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How Would Paul Ryan Change Medicare?

August 16th, 2012

Last year, we reported that House Budget Committee Chairman Paul Ryan (R-WI) proposed a budget that would radically reshape Medicare and shift more costs to seniors and the disabled. At the time, we noted that “the plan may well become the Republican Party's de facto platform in 2012.”

Little did anyone know that the plan’s architect would become Republican candidate Mitt Romney’s choice as his running mate, putting the Ryan plan for Medicare center-stage less than three months before the election. It is time, then, to review Rep. Ryan’s latest proposal to overhaul the popular Medicare program.

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Ryan would end Medicare as a government-funded program that pays all costs except for deductibles and co-pays. Instead, Ryan would shift financial risk from the government to Medicare's beneficiaries. Each beneficiary would receive a fixed amount of money every year (a “voucher”) to buy coverage either from traditional government-administered Medicare or from private health plans that would compete with Medicare while offering the same basic benefits. The voucher program would begin when those who are currently 54 years of age and younger become eligible for Medicare.

The amount of the voucher might cover the full cost of Medicare, especially in the early years, but there's no guarantee that it would. If the voucher can’t cover the cost of the plan beneficiaries choose, they would have to pay the difference themselves (or reap savings if their plan costs less than the voucher amount). Analyzing an earlier Ryan proposal very similar to the current one, the nonpartisan Congressional Budget Office (CBO) calculated that a decade into the program, the typical 65-year-old Medicare beneficiary would be spending $12,500 a year out-of-pocket in today's dollars, more than double under the current system.

At the same time, Ryan would gradually raise the eligibility age for Medicare from 65 to 67 by 2034. Because Ryan would also repeal the new health reform law's coverage provisions, many 65- and 66-year-olds would be uninsured.

The plan also puts a “hard cap” on Medicare spending that could result in significant benefit cuts. Spending would not be allowed to rise more than half a percentage point higher than the growth rate of the economy, or the gross domestic product. If it rose higher than this, Medicare’s spending would have to be lowered one way or another, including cutting benefits to seniors.

Critics say that turning Medicare into a voucher program would create a two-tiered system and drive up costs for sicker beneficiaries. The private plans would lure healthier seniors with perks like gym memberships, while the less healthy would stick with traditional Medicare, in part to keep their own doctors. This would increase premiums for traditional Medicare and prompt doctors to abandon the program as reimbursement rates are cut, something that would affect current beneficiaries.

Supporters of Ryan’s proposal contend that with "skin in the game," seniors would shop for the cheapest health care plans, which would spur competition among private health plans and push costs down. But “critics argue that elderly sick people aren't likely to be good comparison shoppers and could easily be misled by complicated insurance programs,” says the Los Angeles Times.

In addition, the Ryan plan would do away with one of the most popular parts of the health reform law – the gradual elimination of the so-called "doughnut hole" in the Medicare prescription drug benefit, which forces beneficiaries pay 100 percent of drug costs. The doughnut hole would continue under the Ryan plan.